Reevely: Minimum wage hike will hurt those who need it most

Ontario Premier Kathleen Wynne makes herself a cup of tea at a Toronto coffee shop, before making an announcement regarding the minimum wage in the province, on Thursday, January 30 , 2014.Chris Young / THE CANADIAN PRESS

Hiking the minimum wage from $11.40 to $15 an hour by 2019 is a signature move for Premier Kathleen Wynne and her Liberal party, but the province's financial watchdog has a warning.

Hiking the minimum wage from $11.40 to $15 an hour by 2019 is a signature move for Premier Kathleen Wynne and her Liberal party, the biggest item on a list of labour reforms the premier says are about making Ontario’s economy work for more people. It’ll affect an estimated 1.6 million people who make less than $15 an hour now.

Their claims are easy to dismiss if you want to do that. The point of raising the minimum wage is to transfer some profits from owners to low-wage workers and you wouldn’t expect the owners to love it. Employers moan about minimum-wage hikes but somehow we still have an economy. And amid the complainers, there are employers who say that paying better gets them happier workers and healthier businesses. Wynne’s found businesses across Ontario — like Art-Is-In bakery here in Ottawa — to make that case.

The economy is a big enough thing for everyone to be right.

The minimum wage covers two different kinds of workers: those who work at or near minimum wage for much of their lives and those just starting out. Or, put another way, those whose employers consider their work to be worth what they’re paid, and those whose employers hope their skills will grow into their wages.

The first group will mostly be OK when the minimum wage increases. The second group is in trouble.

“Canadian research suggests that a 10-per-cent increase in minimum wages has historically resulted in a three-to-six-per-cent reduction in teen employment,” the FAO says, and we’re talking here about a 32 per cent wage hike, coming in fast and hard. Young adults lose jobs, too, though the effect on them is less pronounced.

“Studies have indicated that businesses which face higher payroll costs typically respond by laying off inexperienced workers. Given this, the job losses would be expected to be concentrated among teens, young adults, and recent immigrants,” the report says. Expect a loss of 65,000 jobs as entry-level employees are replaced by things like automated checkout machines or simply done without.

On the flip side, about 15,000 of those jobs will be made up by higher spending, as minimum-wage workers who remain get paid more and spend more.

Once all the pushing and pulling is done, the FAO expects a net loss of 50,000 jobs, an increase in prices of 0.5 per cent, and an increase in real labour income of 1.3 per cent.

So yes, the minimum-wage earners who keep their jobs will end up a little bit better off. But an odd thing happens when you zoom out and look at household incomes instead of individual incomes.

According to the FAO, most of the household-income increases from raising the minimum wage, 60 per cent, will go to households making less than the median household income. Those are the people the government wants to lift up.

Yet a significant chunk of the benefits, 40 per cent, will go to households making more than the median income of about $92,000 — mainly because few households rely exclusively on minimum-wage-earners and a meaningful percentage of them are actually young people living with parents who make more money. In fact, 10 per cent of the benefits end up with households making more than double that median.

“Will be,” it should say. The Liberals are much too invested in the idea to back down now. Indeed, Wynne reaffirmed her commitment to it on Tuesday after the FAO report came out. She’s “obligated to act,” she said.

I’m obligated to act & I am. Increasing the minimum wage is going to make a difference for millions for people, and particularly women. pic.twitter.com/njHABxV4rJ

It won’t crash the economy, or even the low-wage part of the economy. But it’s an imprecise instrument that will help some people who need it, hurt others the government wishes it were helping and slop some raises onto people who are doing just fine as it is.

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